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Currency reserves decline

Rise in long-term foreign borrowing prompts debt worries

Mar 04,2010
Korea’s foreign reserves dropped by the largest amount in 15 months due to the devaluation of European currencies amid global financial instability, according to the Bank of Korea.

The central bank also announced yesterday that Korea’s long-term foreign debt last year reached a new record high as government and financial institutions issued overseas bonds in order to secure financing.

The country’s foreign reserves in February stood at $270.7 billion, a drop of around $3 billion from $273.6 billion in January, the BOK said. It marked the largest decline since November 2008, when foreign reserves shrunk $11.7 billion.

“The dollar-converted foreign reserve fell due to the sharp devaluation of the euro and British pound, which was largely tied to the fiscal crisis in southern Europe and the U.S. Federal Reserve’s decision to raise its discount rate,” said Moon Han-geun, an official involved in international planning at the central bank.

Foreign currency-denominated securities, which account for 88 percent of the total foreign reserve, lost $670 million to $238.2 billion. Foreign currency-denominated deposits, which make up 10 percent of the foreign reserves, was $27.6 billion, $2.3 billion less than it was in January.

The euro’s value against the dollar dropped 1.7 percent at the end of February to $1.36 from the end of January’s $1.39. The pound’s value plummeted 4.7 percent from $1.60 to $1.52 at the end of February.

Although foreign reserves shrunk, the central bank said they are at a sufficient level - particularly after hitting a record high in January.

“Foreign reserves are usually affected by foreign exchange fluctuation,” Moon added.

Korea’s foreign reserves were the sixth largest in the world at the end of January, trailing behind China, Japan, Russia, Taiwan and India, according to the central bank.

Meanwhile, the BOK said last year’s total long-term foreign debt was $251.9 billion, up 10.5 percent from $228 billion in 2008, raising concerns over a possible augmentation of the debt burden.

The government’s long-term foreign debt increased 31.8 percent from $21.1 billion to $27.8 billion.

The long-term foreign debt of financial institutions, including banks, increased 11.4 percent to $65.7 billion.

Public companies’ foreign borrowing surged 35.8 percent to $12.8 billion.

“If foreign investors, burdened by the depreciation of the won, pull out, a problem could arise and therefore foreign debts must be managed,” said Shin Min-young, analyst at LG Economic Research Institute.


By Lee Ho-jeong [ojlee82@joongang.co.kr]



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